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Money Is Pouring into Tech Like It’s 1999, and That's Not Good

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Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#21

Post by Pxtl »

ep103 wrote: post #3

Theory: Wallstreet has limited other domestic outlets for their investment money since the 2008 crash, and is therefore investing heavily in tech. This will continue until either 1) more sectors of the economy recover present new and/or better investment opportunities or 2) a crash occurs. However, in the case of #2, which everyone fears, unless the conditions change and wall street gets a new location to place their…

That's pretty much it, isn't it? They pick something to start throwing money at until it explodes and destroys half the economy, and then they move onto the next thing. They're still doing real-estate here in Canada.

When will we see a "Western heavy industry" bubble?

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#22

Post by dllthomas »

howeyc wrote: post #9
ep103 wrote: post #3

Theory: Wallstreet has limited other domestic outlets for their investment money since the 2008 crash, and is therefore investing heavily in tech. This will continue until either 1) more sectors of the economy recover present new and/or better investment opportunities or 2) a crash occurs. However, in the case of #2, which everyone fears, unless the conditions change and wall street gets a new location to place their…

My theory is similar. We are in a "rise-all-boats" bull run thanks to the injection of cash into the economy from the Fed. The few "Buffet-like" value investment managers are saying there isn't much margin-of-safety in valuations any more. Also, other than tech, other sectors of the economy are "easy" to price. We pretty much know the growth of a utility company, real estate company, etc is going to be. They can only…

"or a rent seeker (you need to buy the asset to rent it out yourself)"

"Rent seeking" is a different thing than "renting out access to an asset".

http://en.wikipedia.org/wiki/Rent-seeking

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#23

Post by lmm »

Pxtl wrote: post #21
ep103 wrote: post #3

Theory: Wallstreet has limited other domestic outlets for their investment money since the 2008 crash, and is therefore investing heavily in tech. This will continue until either 1) more sectors of the economy recover present new and/or better investment opportunities or 2) a crash occurs. However, in the case of #2, which everyone fears, unless the conditions change and wall street gets a new location to place their…

That's pretty much it, isn't it? They pick something to start throwing money at until it explodes and destroys half the economy, and then they move onto the next thing. They're still doing real-estate here in Canada. When will we see a "Western heavy industry" bubble?

The western heavy industry bubble happened in the 1840s. And before, and after. A financial bubble looks a lot like the "hype cycle" for new tech - it's hyped up somewhere beyond its actual value, then crashes to below its "true" value, then recovers and becomes something actually useful. It happens to every new industry, or when circumstances change.

There are signs the financial industry is running out of targets though (equities trading was pretty much commoditized decades ago, corporate bonds happened in the '80s, we've just seen the boom and bust for sovereign bonds and asset-backed securities. There's a little bit of interesting stuff going on in commodities and forex, but by and large all this money is sloshing around with nowhere to really go for returns), and the industry itself is shrinking. If anything we may have seen a finance bubble too.

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#24

Post by 7Figures2Commas »

netcan wrote: post #7

An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector. Overall, I don't really find this story convincing for a few of reasons, though I suppose there is plenty of room for disagreement. (1)T he first boom actually did get a lot right. The PC-internet revolutions was intense and did create a lot of new value. The mistake was treating it like a land…

> Private money doesn't (I hope) break the economy in the same way that public money can. If VCs go bust there are ramifications, but these markets are not that liquid. There aren't margin calls going off and forcing fire sales.

Too many people trying to compare today's bubble to the first bubble are making the mistake of assuming that it's being led by tech. It isn't.

The current "tech bubble" is just one of multiple bubbles being driven by an even larger bubble in public equities. When the public equities bubble bursts, Silicon Valley will this time be a victim, not the culprit. And there are going to be lots of other victims as well.

> Smaller, younger startups would be in for hard times if investment stopped coming in, but 1,000 $10m (on paper) startups going under is a just 1,000 individual failures. This is correlated in the sense that a shortage of cash would effect them all, but it's not systemic in that their failure would extend far beyond the investors, founders & employees that understand the risk.

How many people are employed by these startups? How would a glut of now-unemployed startup workers affect wage trends? How many non-tech businesses in the Bay Area are thriving on the tech funny money?

Companies like Google and Facebook aren't going anywhere, even if their stock prices become heavily depressed for some time. And despite tech's prominence, the Bay Area economy is still fairly diverse. But it's short-sighted to believe that a significant decline in the number of funded startups would be of minimal impact to anyone but investors, founders and employees.

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#25

Post by 7Figures2Commas »

luma wrote: post #20
netcan wrote: post #7

An interesting twist in the current incarnation is this story is how big "private" money is taking risks on the tech sector. Overall, I don't really find this story convincing for a few of reasons, though I suppose there is plenty of room for disagreement. (1)T he first boom actually did get a lot right. The PC-internet revolutions was intense and did create a lot of new value. The mistake was treating it like a land…

I think point (4) is the key here. The original bubble happened on the public exchanges with public money. The "IPO" was the big deal that everyone wanted to get in on after Netscape, et al valuations went crazy. Institutional investors were investing people's retirement accounts into companies they didn't understand. When that finally fell over, the impact was felt across the economy because it involved everybody's…

> This time the money is largely coming from private equity and there's not a lot of splashy IPOs happening.

This is an amusing statement in light of the fact that the largest IPO in history (Alibaba) took place last week.

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#26

Post by at-fates-hands »

>>>>In the same way, Gurley said, too much cash in the startup economy means weaker companies can survive without having to generate cash for themselves.

Isn't this how business should work? Weaker companies lose and the stronger companies win? Those with good business plans, good marketing strategies and a solid product should be able to weather a crash.

Also, those companies that actively plan for a crash usually do much better. Saving money, having a plan B in place and assuming its going to happen is a lot smarter than simply believing we're not in some kind of bubble and then losing everything when the market eventually corrects itself.

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#29

Post by zxcvvcxz »

On a macro level, a likely hypothesis for this trend is that there is nothing better to invest in than tech. But tech isn't moving fast enough (value is hard to create, not in a gold rush period), so we try to translate money into growth much more. Because otherwise that money's just sitting around!

In an ideal world that money might somehow be invested in long-term societal growth than can yield high tech growth in the future, like education, or maybe investing in individuals for some long-term return on their income. More R&D at all levels. Just random ideas. Point is, it'd be nice to see some creative thinking with investment money rather than see it pumped into companies trying to sabotage each other's ride sharing apps, or out-sell their fundamentally identical crm services, etc.

Re: Money Is Pouring into Tech Like It’s 1999, and That's Not Good

#30

Post by calinet6 »

In the summary, “At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital,” Wilson said, “and start producing value the old fashioned way.”

I do believe a significantly higher proportion of companies today are doing exactly that, and are quite focused on it, whereas they were not in 1999. That's a general and very un-scientific argument for why this bubble (which it still surely is) is not as bad.

Sure, some companies have shaky monetization strategies; but you just can't say companies like Uber are not producing value (rumors of ~$10 billion gross revenue).

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